Is There More Growth In Store For Flügger group's (CPH:FLUG B) Returns On Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Flügger group (CPH:FLUG B) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Flügger group is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.15 = kr.180m ÷ (kr.1.7b - kr.518m) (Based on the trailing twelve months to October 2020).

Thus, Flügger group has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Chemicals industry.

View our latest analysis for Flügger group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Flügger group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Flügger group's ROCE Trending?

We like the trends that we're seeing from Flügger group. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 38%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Flügger group is reaping the rewards from prior investments and is growing its capital base. And a remarkable 174% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Flügger group does have some risks though, and we've spotted 2 warning signs for Flügger group that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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